Question

1. Consider the following demand and supply schedule for eggs in USA for a given month (quantity figures are in millions of dozens):

Price per dozen	Quantity demanded	Quantity supplied
$0.50	40	10
$1.00	30	30
$1.50	20	50
$2.00	30	70
$2.50	40	90

a) Suppose a price ceiling of $0.50 per dozen is imposed on the egg market, in order to help egg consumers. Will there be an excess demand or an excess supply in the egg market? Of what value? Illustrate this excess supply or demand on your graph.

b) Suppose instead that the government decides to impose a price floor of $1.50 per dozen in order to help egg producers. How many eggs must the government purchase to maintain the floor? Illustrate on your diagram.

Answer 1

The question can be answered by plotting the demand and the supply curve on the graph And observing the demand and supply at the price floor and the price ceiling given to come to the answers.

A price ceiling is the price imposed below the Equilibrium price by the government so as to help the consumers as the price can't go above the price ceiling.

A price floor is the price imposed above the equilibrium price by the government such that the price is not allowed to fall below the price floor. It is done to help the producers.

2.5 supply curie lis - - w enus supply at price f2004 af flis --Is Equilibrium price Tindermoeleme ex an demand at Price ceiling of 0.54. -- demonclevue o 60 & 90 30 WO S -0 Quantity price 10.5 can not exceed ay At price ceiling of $0.50, in the eggs market . At this price, quantity demanded is 40 and quantity supplied is to Hence there's excess demand in the market equal to 40-10 = 30 units. 5) of gouto decides to impose a price from of this per dozen , price can not fall below this price as $115. There's exas supply at this price of (50-20) = 30 units. hand needs to purchase this excess Suupply ay 30 units in order to maintain the floor of yout. doesn't buy these 30 units then pria will go down, moving towards equilibrium price because af market forces.